Daily Sun article: District updates position on IRS

[bkcunningham1]

Did anyone else read the short story in the Daily Sun today, Saturday, November 3, 2012, regarding the "tentative" opinion from the Internal Revenue Service that the Community Development Districts are "not political subdivisions"?

According to the story, "If the IRS were to eventually determine such a position, district bonds would no longer qualify for tax-exempt status.

"That 'tentative' opinion has drawn considerable attention across the nation. The National Association of Bond Lawyers has voiced its concern, stating that such a position 'is not supported by existing authority and could substantially undermine the market for special district bonds, a long-standing form of financing utilized by a wide range of issuers n many states.' "

The article goes on to quote Richard Lehmann, publisher of the Distressed Debt Securities newsletter, who described the potential ruling by the IRS as, "as a real can of worms" that could apply to projects across the country. "It could shut off all future issuance of bonds by CDDs and raise costs significantly," Lehmann said.

The Daily Sun article said the Village Center Community Development District attorney Perry Israel, "emphasizes that even though the IRS has reached a tentative adverse ruling in the context of the technical advice memo, it does not necessarily mean that the agency's final conclusion will be adverse."

[graciegirl]

Did anyone else read the short story in the Daily Sun today, Saturday, November 3, 2012, regarding the "tentative" opinion from the Internal Revenue Service that the Community Development Districts are "not political subdivisions"?

According to the story, "If the IRS were to eventually determine such a position, district bonds would no longer qualify for tax-exempt status.

"That 'tentative' opinion has drawn considerable attention across the nation. The National Association of Bond Lawyers has voiced its concern, stating that such a position 'is not supported by existing authority and could substantially undermine the market for special district bonds, a long-standing form of financing utilized by a wide range of issuers n many states.' "

The article goes on to quote Richard Lehmann, publisher of the Distressed Debt Securities newsletter, who described the potential ruling by the IRS as, "as a real can of worms" that could apply to projects across the country. "It could shut off all future issuance of bonds by CDDs and raise costs significantly," Lehmann said.

The Daily Sun article said the Village Center Community Development District attorney Perry Israel, "emphasizes that even though the IRS has reached a tentative adverse ruling in the context of the technical advice memo, it does not necessarily mean that the agency's final conclusion will be adverse."


Doesn't sound hopeful.

[Papa]

Did anyone else read the short story in the Daily Sun today, Saturday, November 3, 2012, regarding the "tentative" opinion from the Internal Revenue Service that the Community Development Districts are "not political subdivisions"?

According to the story, "If the IRS were to eventually determine such a position, district bonds would no longer qualify for tax-exempt status.

"That 'tentative' opinion has drawn considerable attention across the nation. The National Association of Bond Lawyers has voiced its concern, stating that such a position 'is not supported by existing authority and could substantially undermine the market for special district bonds, a long-standing form of financing utilized by a wide range of issuers n many states.' "

The article goes on to quote Richard Lehmann, publisher of the Distressed Debt Securities newsletter, who described the potential ruling by the IRS as, "as a real can of worms" that could apply to projects across the country. "It could shut off all future issuance of bonds by CDDs and raise costs significantly," Lehmann said.

The Daily Sun article said the Village Center Community Development District attorney Perry Israel, "emphasizes that even though the IRS has reached a tentative adverse ruling in the context of the technical advice memo, it does not necessarily mean that the agency's final conclusion will be adverse."

Can someone explain how this impacts me as a homeowner in The Villages? My Bond is Paid. :shrug:

[graciegirl]

Can someone explain how this impacts me as a homeowner in The Villages? My Bond is Paid. :shrug:

It had nothing to do with "that" bond. It is the municipal bonds funding the CDD that the IRS has been examining.

Someone is going to give you a concise explanation but there will be some people who don't like the Morses who will color it that way too.

The truth is that very few people really understand it and the IRS has been examining this CDD Bond stuff for five years now.

[Bogie Shooter]

Can someone explain how this impacts me as a homeowner in The Villages? My Bond is Paid. :shrug:

This site gives you the history of the issue;
Village Community Development Districts (http://www.districtgov.org/IRSupdate.aspx)
You can also go to the POA website Property Owners, Association of Florida (http://www.poa4us.org/) and search the IRS topic.
Also the Village Homeowners site;
The Villages Homeowners Association (http://www.thevha.net/)

More than likely there will be more posts that will just be opinions. Going to these sites you will get the facts.

[kentucky blue]

Doesn't sound hopeful.

Gracie,unfortunately it never did sound hopeful.Some of us researched this situation like it was a final exam in college.Our conclusion was the Morse family will not win the tax exempt status,but will have to reach a settlement at some point.The IRS is not going away,and all the legal maneuvering by the Morse family lawyers will not discourage them.By the way,do you know who has been paying the legal fees to fight the IRS over all these years.........................???????????

[bkcunningham1]

Of course, anything any of us on this forum can say at this point is a guess. So my guess is that at this point, with the information we have from this latest IRS tentative opinion, it means that most likely CDDs won't be able to issue tax exempt bonds as they have in the past.

The ongoing IRS issue regarding TV's CCDDs is, in my guessimation, another thing entirely.

[2 Oldcrabs]

The IRS does not like to LOSE!:rant-rave:

[mickey100]

Gracie,unfortunately it never did sound hopeful.Some of us researched this situation like it was a final exam in college.Our conclusion was the Morse family will not win the tax exempt status,but will have to reach a settlement at some point.The IRS is not going away,and all the legal maneuvering by the Morse family lawyers will not discourage them.By the way,do you know who has been paying the legal fees to fight the IRS over all these years.........................???????????

Good point KB - yes, we the homeowners have ended up paying the legal fees. I assume at some point if the decision goes against the Morses, there may be another class action lawsuit against them to recoup any losses that residents have or will incur. For those that are not familiar with the IRS lawsuit, it contends that the districts that issued the bonds don't meet the test of a genuine "political subdivision." Its governing board isn't chosen by residents, it has no authority to exercise police power and its power to take private property for public projects is very limited.

The IRS contends that the districts' governing boards are controlled by The Villages developer, Gary Morse, and their bond sales have benefited him, not residents.:oops:

[quirky3]

Good point KB - yes, we the homeowners have ended up paying the legal fees. I assume at some point if the decision goes against the Morses, there may be another class action lawsuit against them to recoup any losses that residents have or will incur. For those that are not familiar with the IRS lawsuit, it contends that the districts that issued the bonds don't meet the test of a genuine "political subdivision." Its governing board isn't chosen by residents, it has no authority to exercise police power and its power to take private property for public projects is very limited.

The IRS contends that the districts' governing boards are controlled by The Villages developer, Gary Morse, and their bond sales have benefited him, not residents.:oops:

Can someone help explain what losses the residents may incur?

[gustavo]

The IRS does not like to LOSE!:rant-rave:

They've sent me three, thirty day letters and one NOD looking for over $100,000 over the past 10 years, and never collected a dime. So although they don't like to lose, they often do.

[Taltarzac725]

A BRIEF CHRONOLOGY OF IRS VS. VCCDD AND SLCDD (http://www.poa4us.org/irschronology_poa.html)

[Advogado]

Can someone help explain what losses the residents may incur?

First, a few observations: The situation is both complex and POTENTIALLY very serious. Anybody who tells you the contrary either doesn't understand it or is lying. The Developer-controlled Daily Sun and Villages Homeowner's Association have never explained the matter and have spun the facts in the Developer's favor. So, the only objective reporting on the matter has been contained in the POA Bulletin, which a poster in another thread was complaining about having delivered to his house, and by Lauren Ritchie in the Orlando Sentinel, who has been crucified by a number of posters to this forum.

The most complete analysis of the implications for Villagers can be found here: http://www.poa4us.org/bulletins_files/bulletin200908.pdf

[mickey100]

First, a few observations: The situation is both complex and POTENTIALLY very serious. Anybody who tells you the contrary either doesn't understand it or is lying. The Developer-controlled Daily Sun and Villages Homeowner's Association have never explained the matter and have spun the facts in the Developer's favor. So, the only objective reporting on the matter has been contained in the POA Bulletin, which a poster in another thread was complaining about having delivered to his house, and by Lauren Ritchie in the Orlando Sentinel, who has been crucified by a number of posters to this forum.

The most complete analysis of the implications for Villagers can be found here: http://www.poa4us.org/bulletins_files/bulletin200908.pdf

Thanks Advogado - the link provides an excellent analysis. We are fortunate to have the POA looking out for the residents. :bowdown:

[The Shadow]

Did anyone else read the short story in the Daily Sun today, Saturday, November 3, 2012, regarding the "tentative" opinion from the Internal Revenue Service that the Community Development Districts are "not political subdivisions"?

According to the story, "If the IRS were to eventually determine such a position, district bonds would no longer qualify for tax-exempt status.

"That 'tentative' opinion has drawn considerable attention across the nation. The National Association of Bond Lawyers has voiced its concern, stating that such a position 'is not supported by existing authority and could substantially undermine the market for special district bonds, a long-standing form of financing utilized by a wide range of issuers n many states.' "

The article goes on to quote Richard Lehmann, publisher of the Distressed Debt Securities newsletter, who described the potential ruling by the IRS as, "as a real can of worms" that could apply to projects across the country. "It could shut off all future issuance of bonds by CDDs and raise costs significantly," Lehmann said.

The Daily Sun article said the Village Center Community Development District attorney Perry Israel, "emphasizes that even though the IRS has reached a tentative adverse ruling in the context of the technical advice memo, it does not necessarily mean that the agency's final conclusion will be adverse."
The way I read this CDD's would no longer be able to issue tax free bonds, end of story. No penalties for previous bonds, homeowners, bond buyers or sellers or the recipient of large sums of money as a result of the bond sales.

Then what? After build out the developer would charge $50 for golf?

[Cantwaittoarrive]

The way I read this CDD's would no longer be able to issue tax free bonds, end of story. No penalties for previous bonds, homeowners, bond buyers or sellers or the recipient of large sums of money as a result of the bond sales.

Then what? After build out the developer would charge $50 for golf?

I agree and my guess is like you stated we would face "taxes" in the form of fees for things that are "free" now

[Advogado]

The way I read this CDD's would no longer be able to issue tax free bonds, end of story. No penalties for previous bonds, homeowners, bond buyers or sellers or the recipient of large sums of money as a result of the bond sales.

Then what? After build out the developer would charge $50 for golf?

You could reach the conclusions set forth in your first paragraph on the basis of the Daily Sun article, and you would be wrong. See the link to the POA Bulletin in my earlier post. The linked POA article was published in 2009, but the analysis set forth in it is still valid. The subsequent developments consist of one setback after another for the Center Districts (which own most of our amenities and which issued the relevant bonds to pay the Developer for them). Those developments are described in POA Bulletins, which can be found on the POA website.

[Bogie Shooter]

I think the significant news is that people in Florida and around the US are now beginning to ask questions and get involved in the discussion. The financial impact to the future of issuing or not issuing tax exempt bonds will be very large.

[Advogado]

I think the significant news is that people in Florida and around the US are now beginning to ask questions and get involved in the discussion. The financial impact to the future of issuing or not issuing tax exempt bonds will be very large.

True. Hopefully, this factor convinces the IRS to address the issue of Community Development District bonds prospectively-- by issuing regulations to prevent FUTURE abuse, rather than to attack the bonds already issued. However, thus far, I have seen no indication that the IRS is going to take that approach.

[aljetmet]

Can someone help explain what losses the residents may incur?

Very subjective. divide the penalty by the number of homes? Should new home owners pay for deeds done years ago?

[golf2140]

Let see. At one point years ago the IRS approved these transactions. Now the IRS dosen't approve thees transactions. Gee, is our government broke?

PS: It's not just affecting The Villages, but 1000's of other CDD !!

[spk7951]

True. Hopefully, this factor convinces the IRS to address the issue of Community Development District bonds prospectively-- by issuing regulations to prevent FUTURE abuse, rather than to attack the bonds already issued. However, thus far, I have seen no indication that the IRS is going to take that approach.


IRS is more interested in collecting their penalties. But as was quoted in that article some believe that this, potentially nationwide issue, will eventually be resolved by congress.

[janmcn]

Let see. At one point years ago the IRS approved these transactions. Now the IRS dosen't approve thees transactions. Gee, is our government broke?

PS: It's not just affecting The Villages, but 1000's of other CDD !!

The IRS probably never intended that these CDD's be packed with friends, relatives, and employees of the developer as they were here in TV.

[2BNTV]

What does this ruling mean to future residents?

Does it affect future residents if they buy pre-owned and the bond is paid?

Does future residents have a liability going forward?

[Bogie Shooter]

The IRS probably never intended that these CDD's be packed with friends, relatives, and employees of the developer as they were here in TV.

How do you know that other CDD's are not run the same way as you suggest??

[graciegirl]

What does this ruling mean to future residents?

Does it affect future residents if they buy pre-owned and the bond is paid?

Does future residents have a liability going forward?

It isn't the bond paid on individual homes that is discussed here. That is not affected.

NO one can really say for sure what could would should happen to all of us homeowners if the IRS ruled in this or that way, but lots of folks try and it appears to me to be mostly speculation.

No one can concisely explain what the issue is and the IRS has been investigating it for five years now. Back then the Morses could have paid some fee but their lawyers, from what I have been told, felt to do so threatened the structure of the CDD operation. Now I could be wrong and I am frequently, but seems to me that if the Morses wanted to settle it with money they could and would.

This issue comes up for discussion about every four or five months here on TOTV and the same people take the same sides.

Lauren Ritchie a reporter/columnist/writer for the Orlando Sentinel has weighed in on this issue as well. It seems to me that THAT paper rarely says anything positive about the Morses. Wonder why?

[batman911]

Could all this be solved by incorporating TV as a city and make all the CDD assets municipal property?

[mulligan]

don't even think of ruining a good thing for the 90,000 that are actually here

[mickey100]

It isn't the bond paid on individual homes that is discussed here. That is not affected.

NO one can really say for sure what could would should happen to all of us homeowners if the IRS ruled in this or that way, but lots of folks try and it appears to me to be mostly speculation.

No one can concisely explain what the issue is and the IRS has been investigating it for five years now. Back then the Morses could have paid some fee but their lawyers, from what I have been told, felt to do so threatened the structure of the CDD operation. Now I could be wrong and I am frequently, but seems to me that if the Morses wanted to settle it with money they could and would.

This issue comes up for discussion about every four or five months here on TOTV and the same people take the same sides.

Lauren Ritchie a reporter/columnist/writer for the Orlando Sentinel has weighed in on this issue as well. It seems to me that THAT paper rarely says anything positive about the Morses. Wonder why?

If they could make the problem go away with money, its obviously to their advantage to have it happen later than earlier. They get use of their money and the interest on it even that much longer. The Orlando paper is just doing what papers do - they find a story and report on it . The bottom line is the Morses knew the IRS frowned on the issue of the bonds, and they continued to issue more. I just hope that the residents aren't the ones that pay the price down the line.

[ijusluvit]

Good point KB - yes, we the homeowners have ended up paying the legal fees. I assume at some point if the decision goes against the Morses, there may be another class action lawsuit against them to recoup any losses that residents have or will incur. For those that are not familiar with the IRS lawsuit, it contends that the districts that issued the bonds don't meet the test of a genuine "political subdivision." Its governing board isn't chosen by residents, it has no authority to exercise police power and its power to take private property for public projects is very limited.

The IRS contends that the districts' governing boards are controlled by The Villages developer, Gary Morse, and their bond sales have benefited him, not residents.:oops:

I'd like to know how you have concluded that the residents of TV have paid the legal bills to contest the IRS challenge to issuing tax free bonds.

My take on this is that these funds would have to come from the Morse's directly, from profits in the sale of homes, lease and rent payments, etc. But this is money they have earned. For it to by "our money" they would have to use funds from amenity fee accounts. With the use restrictions and public disclosure requirements of those funds, I don't see how the Morses could tap into these accounts to pay legal expenses.

[janmcn]

How do you know that other CDD's are not run the same way as you suggest??

I have no idea how the other 1000 CDD's are run, but The Villages CDD bond issue is the only one that's constantly mentioned in the newspapers. BTW does the US have an extradition agreement with Barbados?

[ilovetv]

This March, 2009 edition of "Our Place" by Janet Tutt published on Village Community Development Districts (http://districtgov.org/IRSupdate.aspx) gives a good history of the situation:

http://districtgov.org/images/IRSupdates/20090319%20-%20IRS%20Update.pdf

[mickey100]

I'd like to know how you have concluded that the residents of TV have paid the legal bills to contest the IRS challenge to issuing tax free bonds.

My take on this is that these funds would have to come from the Morse's directly, from profits in the sale of homes, lease and rent payments, etc. But this is money they have earned. For it to by "our money" they would have to use funds from amenity fee accounts. With the use restrictions and public disclosure requirements of those funds, I don't see how the Morses could tap into these accounts to pay legal expenses.


I read it somewhere in all the myriad of information and articles that are out there that Morse is not paying for the lawyers. It is being funded by the central districts which get their money from our amenity fees.

[Advogado]

I read it somewhere in all the myriad of information and articles that are out there that Morse is not paying for the lawyers. It is being funded by the central districts which get there money from our amenity fees.

You are correct. Furthermore, the Morses, themselves, are not the subject of the IRS investigation. The Center Districts, which sold the bonds to raise cash to pay the Developer for the amenity facilities, etc. are the subject. Remember, technically the Developer is NOT the Morses. The Developer is a corporation (The Villages of Lake-Sumter, Inc.), which is owned by the Morses.

[mickey100]

Thanks for clarifying, Advogado.